Sir Richard Branson said Virgin's bid for the west coast mainline route would be a 'late Christmas present' for the Treasury Photograph: Myung Jung Kim/PA

Virgin Trains has staked its claim to renew the prestigious west coast rail franchise by warning the government against repeating the east coast fiasco and awarding the contract to the highest bidder.

Acknowledging that his Virgin empire faces deep-pocketed competition from the French and Dutch state rail operators for the lucrative London-to-Glasgow route, Sir Richard Branson indicated that his company would win if customer service is judged to be an important factor.

Asked to give his opinion of Keolis, backed by France's SNCF, and Abellio, an offshoot of the Dutch national rail business, he said: "State-run companies generally speaking do not do that great a job, I believe."

Virgin Trains is also competing against Aberdeen-based FirstGroup for a 14-year contract, with the winner to be announced next summer.

Sir Brian Souter, whose Stagecoach group owns 49% of Virgin Trains, said he was "not afraid" of big-spending rivals but warned the government against triggering a repeat of the east coast bidding contest in 2007, when National Express knocked out Virgin with a successful £1.4bn bid. National Express handed back the route less than two years later after admitting that it could not afford the escalating payments set out in the contract.

"We have lost bids before like east coast mainline based on someone overbidding," said Souter, adding that the Virgin Trains bid would have "transformed" the London-to-Edinburgh line. "We just pray that does not happen again," he said.

Branson said that Virgin's bid for a new contract would represent a "late Christmas present" for George Osborne. "Great Britain urgently needs investment and we are willing to deliver that investment. I don't think the chancellor realises that we will bring a late Christmas present when we bid next year, bringing literally billions of pounds to his coffers when this country desperately needs cash."

The government was criticised last month for selling Northern Rock to Branson at a loss of at least £400m on the £1.4bn that the taxpayer pumped into the stricken lender during the credit crunch. One MP said that the entrepreneur had been sold the bank "for a song", as Branson pledged that the revamped business would offer small loans to the poor under the Virgin Money brand.

However, Virgin Trains says it has generated strong returns for the taxpayer as well as improving services on a route that will carry 30m people this year. According to Virgin, it pays a premium to the government of £160m a year, which could result in total payments of more than £2bn over the course of a 14-year contract.

The west coast route has also been profitable for Branson. Since launching its trains business, his Virgin empire has earned dividends of more than £188m, including £17.8m last year, a total that the company says rewards the "risk" it took in running services on a line that was beset by engineering problems for much of the past decade.

Bob Crow, general secretary of the RMT trade union, described the franchise as a "one-way ticket to the bank" for the entrepreneur.

Branson said that Virgin Trains was awaiting the Department for Transport's outline of the bidding criteria, but promised passengers "radical" changes if its bid were successful.

"We have radical ideas for the new franchise and we are still waiting to see whether the new franchise will really be based on the bottom line, and whether innovative ideas will be taken into account," he said.

A government spokesman said: "All bids are judged on their affordability, deliverability and their value for money for passengers and the taxpayer."